Unit 2

Question 1

CONSUMPTION

factors that effect it

Answer 1

Interest rates

Consumer confidence

Wealth effect

Question 2

INVESTMENT

Factors that effect it

Answer 2

• Interest rates
• Economic growth rate
• Business confidence
• Keynes & Animal spirits
• Demand for exports
• Access to credit
• Influence of gov and regulations

Question 3

GOV EXPENDITURE

Factors that influence it

Answer 3

The trade cycle

Fiscal policy

Question 4

NET TRADE

factors that effect it

Answer 4

Real incomes 
Exchange rates 
State of the world economy 
Degree of protectionism 
Non price factors

Question 5

SUPPLY SIDE POLICIES

Aim to…..

Answer 5

1) to increase incentives
2) to promote competition
3) to reform labour market
4) to improve skills of labour market
5) to improve infrastructure

Question 6

AGGREGATE SUPPLY

Factors that effect Short run

Answer 6

Changes in cost of raw materials and energy

Changes in exchange rates

Changes in tax rates

Question 7

AGGREGATE SUPPLY

Factors that effect Long run

(classical and Keynesian)

Answer 7

• Technological advances
• Changes in relative productivity
• Education and skills changing
• Changes in gov regulation
• demographic changes & migration
• Competition policy

Question 8

MACROECONOMIC OBJECTIVES

Answer 8

Economic growth 
Low unemployment 
Low and stable inflation 
Balance of payments equilibrium 
Balanced gov budget 
Protection of the environment 
Greater income equality

Question 9

SUPPLY SIDE POLICIES

Market based aims to…

Answer 9

Increasing price flexibility and signalling (remove minimum wages)

Increasing competition (deregulation and privatisation)

Improve incentives (cut income tax)

Question 10

SUPPLY SIDE POLICIES

Interventionist methods

Answer 10

Regulation (stop banks taking high level risks)

Improve education/training

Improve infrastructure